1. Field of the Invention
This invention pertains generally to electronic payment systems and more particularly to a financial instrument, in the form of a payment card, for use in executing electronic funds transactions.
2. Description of the Background Art
The volume of electronic payment transactions executed with credit cards, debit cards (on-line and off-line), and ATM cards at the point-of-sale has reached an annual level of approximately 45 billion point-of-sale (POS) transactions annually which represent over $1.1 Trillion in transactions. The transaction volume of electronic transactions is continuing to grow readily. Debit and checks currently represent 63% of total non-cash payments at the POS today and this percentage is expected to grow to 70% by 2010. Currently, 18 billion checks are processed annually with merchants incurring an estimated $23 billion in check handling and fraud costs. As debit cards gain wider acceptance, the use and volume of checks is declining. Debit transactions are surpassing credit transactions at the POS. It is anticipated that by 2010, non-cash POS transactions are expected to grow to 67 billion transactions with a transaction value of $4.6 Trillion (Nilson Report, Star System Inc.—Tower Group).
The policies and operating principles for executing electronic transactions is currently determined by issuing banks which charge substantial transaction fees for processing these non-cash transactions. The fees collected for executing the transactions are borne by the merchants, typically retailers, and these transaction fees have continued to escalate. Even current automated clearing house (ACH) “check-based” debit cards such as “VISA Check”™ by VISA® and “Master Money”™ by MasterCard® subject the retailers to the same rate schedule as conventional VISA, MasterCard, and other similar credit card products.
The transaction fee paid by the merchant for a moderately sized purchase of $60 can approach $0.75. It will be appreciated that since a large percentage of point-of-sale transactions are executed using credit cards, debit cards, and ATM cards, the overall cost per transaction may significantly impact merchant profitability. The trend has been toward increasing use of debit instruments in relation to checks and credit card instruments, while the transaction cost for these instruments continues to increase, at the expense of merchants that accept the cards for payment.
As conventional debit, credit, and ATM transaction instruments are under the control of issuing banks, merchants must follow the dictates of the banking institutions and consequently have no control over the process, and furthermore no access to consumer purchase information within the associated databases. As a result, the ability of merchants to establish retailer loyalty and frequent buyer programs is severely diminished.
Therefore, a need exists for a point of purchase card-based electronic payment system which provides conventional features to consumers while reducing merchant processing costs and increasing the ability of merchants to access consumer transaction information for use in their own special incentive programs. The present invention satisfies those needs, as well as others, and overcomes the deficiencies of previously developed electronic payment systems.